Two years ago you purchased a machine for $2M. Last year you sold it for $1.75M and replaced it with a new machine that costs $3M. Both machines are classified as 10-year property (with depreciation rates of 10% and 18% in the first two years). Youve reached the end of the first year with the replacement machine and youve decided to sell it for $2.5M. (If you had kept the old machine, it would have been sold today for $1.6M.) What are the incremental cash flows in the terminal year? Assume operating cash flows are zero and the tax rate is 35%.

Group of answer choices

$900,000

$1,100,000

$1,005,000

$1,000,000

$774,000